Safety Stock and Re-order Point:
Demand for a component during its lead time is normally distributed, with a mean of 500 units and standard deviation of 20. The firm wishes to limit stockouts to an average of 1 in every 20 order cycles (service level should be 19/20).
Determine what safety stock and re-order point should be used?
If the company wants to provide a service level of 98%, what amount of safety stock it should provide
Expert Answer
Mean demand during lead time(dL) = 500 units
Standard deviation of demand during lead time (sigmadL) = 20 units
Service level = 19/20 = 0.95
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